Nutanix stock crumbles after revenue loss and forecast decline

Shares of data storage company Nutanix Inc. were in free fall today, after exceeding revenue expectations and forecasting for next quarter, well below Wall Street forecasts .

The company, which sells a hyper-converged computing infrastructure integrating compute, storage and network components, recorded a loss in the third quarter, with some costs such as equity compensation of 56 cents per share for a quarterly figure. business of $ 287.6 million, down from $ 289.4 million generated. reported a year ago.

Wall Street was expecting the company to record a loss of 60 cents per share on a $ 297 million business figure.

Nutanix executives quickly blamed the shortfall due to the company's ongoing transition to a subscription licensing model, complicated by the need to re-train sales staff. But things could have been worse, as these efforts are progressing faster than expected, officials said.

"Our transition to underwriting is ahead of schedule," said Nutanix CEO Dheeraj Pandey (pictured) during a conference call.

This may be the case, but Nutanix has warned that the situation could worsen before improving its bottom line. The company expects a loss of 65 cents per share on a business turnover of $ 280 million to $ 310 million for the fourth quarter.

That was enough to sound the alarm, with Wall Street predicting a much lower loss of 49 cents per share on a $ 332.9 million business figure. Investors dispersed like rats, with Nutanix shares falling nearly 18 percent after trading hours.

Nutanix officials, probably expecting the negative reaction from their shareholders, have done their best to positively inform the company's situation. For example, they pointed out that about 65% of the company's billing in the third quarter came from subscriptions. As a result, Nutanix's subscription revenues reached $ 168 million, up 110% from the previous year.

Duston Williams, chief financial officer of Nutanix, said the company hoped to benefit from several long-term benefits from its transition to a subscription model. These include a more predictable revenue stream, lower marketing costs, and the ability for customers to pay for technology over a long period of time.

Nevertheless, he noted that any transition of this nature also causes friction. For example, the duration of Nutanix products sold by subscription is only four years, compared to five years for products sold through traditional sales models. In addition, subscription revenues from product sales and support are deferred, resulting in lower initial revenue, Williams said.

Another problem for Nutanix is ​​that it needs time to retrain sales staff, distributors, channel partners and customers on its new business model, he added.

One problem that Nutanix has failed to mention is the increased competition it faces in its hyperconverged infrastructure market, said Charles King, an analyst at Pund-IT Inc., SiliconANGLE.

"The central problem of the company is that the hyperconverged markets where it was one of the first innovators are being invaded by larger competitors who are often also partners of Nutanix," King said.

King said that these larger competitors had an advantage over Nutanix because they had much closer relationships with their existing and potential customers. On the other hand, Nutanix, smaller, is only one of the "many types of hyperconverged technologies" that its partners can offer to their customers.

"Nutanix would be better served by partners willing to evangelize its solutions, but this result seems more and more unlikely," said King. "Looking for other opportunities and opportunities is a good choice for Nutanix, but I do not know in what sense and how long the company needs to influence these changes."

King was not the only one to worry about the growing competition that Nutanix is ​​facing. Earlier this week, Morgan Stanley analyst Katy Huberty reduced his price target for Nutanix because of pressure from larger competitors, such as Dell Technologies Inc., and the general slowdown in the storage market. This resulted in a 10% drop in Nutanix stock before today's losses.

During the quarter, Nutanix announced a new global partnership with Hewlett Packard Enterprise Co. to host its Nutanix Enterprise Cloud software on HPE server technology. Pandey recently stopped at the CUBE, SiliconANGLE's video studio, to discuss the prospects of this partnership:

Photo: SiliconANGLE